Why We're No Longer Number One

Last week World Bank economists predicted that China would soon displace the
United States as the world's largest economy. The fact that this one-time economic
basket case is now positioned to surpass the US is one more sign of the damage
done to American prosperity by welfare, warfare, corporatism, and fiat money.

Some commentators have predicted that China's reign as the world's largest
economy would not last long. This may be true. While China has made great strides
since adopting free-market reforms in the 1970s, China is still run by an authoritarian
government whose economic policies distort the market in order to benefit state-favored
industries. These state-favored businesses are often controlled by politically-powerful
individuals.

What many of these commentators fail to notice is that the American government
pursues many of the same flawed policies as the Chinese. For example, because
of the increase in regulations, subsidies, and bailouts, many American businesses
are putting more resources into manipulating the political process than producing
goods and services desired by consumers. Many big businesses even lobby Congress
and the federal bureaucracy for new regulations on their industries. They do
this because big business can more easily absorb the costs of complying with
the new regulations that force their smaller competitors out of business.

China is regularly criticized by American protectionists for subsidizing its
export industries. However, the US government does the same thing via programs
such as the Export-Import Bank. China is also criticized for manipulating the
value of its currency to make its exports more attractive to foreign consumers.
This may well be true, but China is hardly unique in this respect. Throughout
its history, the Federal Reserve has manipulated both the domestic and international
economy, often working in partnership with foreign central banks.

The Federal Reserve's inflationary policies benefit big banks, politically-connected
businesses, and big-spending politicians at the expense of the American people.
Anyone interested in helping improve the American people's economic situation
should focus on changing America's monetary policy, not China's.

Ironically, many of the same politicians who denounce China's monetary policy
benefit from Chinese purchases of America's debt. If China stopped making large
purchases of US debt, the Federal Reserve would be forced to monetize even
more debt, thus risking hyperinflation. So the best thing Congress could do
to make it more difficult for China to manipulate the global economy is cut
federal spending.

One advantage China has over the US is that the Chinese government does not
waste money on a hyper-interventionist foreign policy. The United States government
spent approximately $752 billion on the military in fiscal year 2013. In contrast,
China spent approximately $188 billion. While China may be increasing its military
spending, it has a long way to go to catch up to the United States.

It is difficult to see how the American people, other than those who run or
work for the military-industrial complex, benefit from this spending. Military
spending, like all government spending, hampers private sector growth by taking
resources away from investors, entrepreneurs, and consumers while contributing
significantly to the national debt. In contrast, a return to the policy of
peace and free trade would allow those resources to be used by entrepreneurs
to create new businesses and new jobs.

News that China is soon to surpass the United States as the largest economy
in the world is a stark reminder of how the American people are harmed by the
welfare-warfare state, crony capitalism, and fiat currency. The only way to
avoid continuing collapse is to finally reject an interventionist foreign policy,
stop bailing out and subsidizing politically powerful industries, and restore
a free market in money.

Congressman Ron Paul of Texas enjoys a national reputation as the premier
advocate for liberty in politics today. Dr. Paul is the leading spokesman
in Washington for limited constitutional government, low taxes, free markets,
and a return to sound monetary policies based on commodity-backed currency.
He is known among both his colleagues in Congress and his constituents for
his consistent voting record in the House of Representatives: Dr. Paul never
votes for legislation unless the proposed measure is expressly authorized
by the Constitution. In the words of former Treasury Secretary William Simon,
Dr. Paul is the "one exception to the Gang of 535" on Capitol Hill.